Can Artificial Intelligence Technologies Advance Environmental Sustainability? The Role of Institutional Adaptability and Skill‐Biased Technological Transformation

ABSTRACT The ubiquitous proliferation of artificial intelligence (AI) technologies across contemporary global economic systems necessitates a comprehensive empirical examination of their environmental ramifications, particularly with respect to environmental sustainability paradigms. This study leverages a longitudinal panel of 29 advanced and developing economies over the period 2005–2024, employing AI patent filing frequencies as a quantitative proxy for national AI capability. Our econometric analysis reveals a statistically robust and economically meaningful relationship: higher AI activity is consistently associated with increases in the load capacity factor (LCF), a composite indicator of environmental sustainability. This association endures across multiple model specifications, remains significant under instrumental‐variable estimation to address endogeneity, and passes a battery of robustness and sensitivity checks. Mechanism analysis uncovers two principal transmission channels. First, AI drives technological transformation in labor markets—favoring non‐routine and high‐skilled occupations—which in turn enhances resource efficiency and elevates LCF. Second, institutional flexibility—proxied by regulatory quality and innovation‐friendly governance—magnifies AI's positive environmental effects by lowering transaction costs and facilitating diffusion. Heterogeneity tests further demonstrate that countries geographically proximate to global AI leaders experience stronger LCF gains, underscoring the importance of knowledge spillovers. Moreover, lower‐income and fossil‐fuel–dependent economies exhibit more pronounced benefits, indicating AI's potential as a transitional “leapfrog” technology. Among AI subfields, patents in energy‐management applications deliver the largest LCF improvements. Overall, our evidence underscores the pivotal role of AI‐driven patented technologies in strengthening environmental sustainability. Policies that incentivize AI innovation, support institutional adaptability, and foster international technology transfer are therefore essential to accelerate global progress toward sustainable development targets.